Price points are key to getting business whether, over the counter or off the stall. Funny that, it’s the same all round the world! So, gold seems stuck for now below the $999 price-point. Silver, though has zoomed through $19.99 — so, is it ‘$29.99 here we come?’ It did hit $48 in the ‘80s.
Silver is taking Indian investment business by storm. Mumbai says its customers are selling at current gold levels. Since Indians are THE gold buyers that’s important. Of course, it should be remembered that Indian customers hate it when prices gyrate. And have they ever been doing that recently!
"Domestic gold demand has simply vanished," a treasury official at India’s state-run Corporation Bank was quoted as saying. "We expect huge inflows of scrap metal coming at these record high prices."
In Mumbai, silver has gone through Rs25,000. But that’s per kilo. Gold is Rs12,800 is for an ounce. Silver thus seems so much cheaper. So far in 2008 it’s gone up 35% without a problem. And is a metal that is supposed to be in oversupply. True, gold has few industrial users. But its price has risen by a mere 17% so far this year.
Global investment demand is driving silver
Silver has crossed the financial line around the world. Prices are at 27-year highs. It has again become an investment item. Riding gold’s coat-tails it may be — yet, by contrast to the lumpy gold price, silver’s is not so frightening. What is driving silver, say the Mubai traders, is not jewellery demand per se — it is investment buyers.
In fact, demand for silver jewellery dropped by 25% in India last year. That was offset by a 33% increase in investment demand. Bars, medallions and coins have been increasingly popular.
In India you have to be pretty careful when you buy silver. As, fortunately, Isabel’s tour guide warned her. The Times of India cautioned a few years ago that "fake silver items have captured 70% of the market in Delhi." Silver items are mixed with cheaper metals. Things have been improving, but...
Watch out for Indian silver ETFs
As yet there are no Indian silver exchange traded funds! There are plans, but they haven’t yet happened yet. When they do appear, watch that silver price...
Of course, ETFs are now the purchase of choice for most commodities investors. By the end of 2007 off-take by the three big silver EFTs — in the US, UK and Switzerland — totalled nearly 6,000 tonnes. The largest one, the US Barclays’ Global Investors’, pulled in an amazing 1,478 tonnes last year.
Because of this Indians have had recourse to the futures market — buying contracts for delivery some weeks or months ahead. But that still gets reflected in the price.
Investment buying everywhere has taken over silver. So said Jeffrey Christian, CEO of New York research and consultancy CPM Group, speaking at the Prospectors and Developers’ Association of Canada conference in Toronto. "It is the single most important factor driving the silver price up."
He thinks that the price will benefit from all the factors that have been driving gold. So, for that read; fear of collapse of the dollar, hyperinflation, recession, etc, etc.
Add in the fundamentals and jewellery, and demand is huge. Electronics used 6,207 tonnes of silver last year, and that’s expected to rise to 6, 597 tonnes this year, according to the VM and Fortis ‘silver bible’, The Silver Book. Jewellery sales in India may have been slackening in late 2007, but sales there are still likely to rise from 2,546 to 2,648 tonnes this year, so the Silver Book says.
Who are the analysts kidding!
Forgive me, but looking at the prices and these numbers you have to wonder just WHAT the analysts are thinking. There is a new forecast just out from major broker Merrill Lynch. After a fair degree of crunching they’ve come up with new figures. It is no longer predicting $14 for 2008, followed by $13 for 2009 and $12 for 2010. There has been a major revision. The new numbers? $15.50, $16.50 and $17 respectively.
"We are also revising upwards our long-silver price forecast from $10 to $10.50," says their note.
Well, Isabel and I had a good laugh. So, ONE touch of reality has crept in. There is acceptance of the fact that silver demand is here to say, for a while at least. At least the figures are on a rising trend!
That might cheer up the silver mining shares a bit. Dismal share price performances over the last year have left a lot looking pretty miserable. The sector is very much junior to gold. With around 50 members it is worth $40 bn or so.... which is about what top gold stock Barrick weighs in at. Yet Pan American Silver, Silvercorp and Coeur d’Alene are not too far down from their peaks.
It looks to us like VM’s Jessica Cross is much more on the ball. Last week she said "silver is exciting and often ignored, competing in the shadow of gold and platinum." Ignored in the headlines it may be, she pointed out, but had managed a 254% rise since the low point in 2001. Gold had done 235%." This despite the fact that photography’s use is steady declining and new mines are coming on stream.
New uses for silver are being invented in all the time. Industry took 15% more last year. Cross has been highlighting Radio Frequency Identification Devices (RFID). More simply this is called RFID tagging. Not huge yet, it is definitely growing. By 2010 it could use 100,000 kilos a year. And, unlike other applications, the silver can’t be recycled.
So silver investors can be smug.
Keep counting.
Erin and Isabel
